The current state of the global recovery

I have watched how the recovery narrative has been promoted in the financial media and among confident economists and analysts.

To help individuals thoroughly consider their direction, here are the counterarguments against the over-idealistic recovery-narrative.

US Non Farm Payrolls

The consumer is the most significant driver of the U.S. economy (70% of U.S. Gross domestic product), and the greatest supporter of that is jobs. Private job increases jumped throughout the spring and it has since recuperated slightly. Now it has really slowed.

Total nonfarm payroll employment rose by 1.4 million in August 2020, following larger increases in the prior 3 months. In August, nonfarm employment was below its February level by 11.5 million, or 7.6 percent.

AND while the pace of corporate liquidations has eased, corporate insolvencies saw their greatest ever increment in August. This makes any further imminent improvements in employment unlikely.


What is amazing is that even as the number of employment opportunities flooded by more than 600K, there was a startlingly plunge in recruiting, and after the BLS announced of 7 million recruits in June, in July this number out of the blue plunged by a record 1.183 million to simply 5.787 million in July, the most reduced since April.

China Industrial Production

In the 2nd largest economy, industrial production unexpectedly fell in January and February, and we have not seen any bounce yet to pre-Corona levels. With the current growth of 4-5%, it will take until around Christmas to arrive at the level where it was before the pandemic (in December 2019).

Euro Zone Industrial Sentiment

The Euro Zone was in recession in Q4 2019 before the pandemic. There are likewise not many indications of a genuine recovery in the area, reflected, for instance, in fallen industrial sentiment, which has not recovered. This will have adverse consequences for the banking sector which is already weak. What’s even worse is deflation has hit Europe.

Deflation arrives in Europe

Stimulus So Far

The issue overlooked in the recovery-narrative is that whatever lackluster recovery there is has only been achieved by truly colossal levels of fiscal and monetary stimulus.

The balance sheet of the Federal Reserve has also exploded from little over $4 trillion to over $7 trillion in just a few months. 

Stimulus in China has also broken records.

By the end of July, aggregate financing reached an astonishing $3.3 trillion, easily topping the previous record of $2 trillion set in 2019.

The situation can only be characterized as a business cycle artificially extended through monetary stimulation leading to excessive financial speculation.

What happens when the stimulus evaporates?

IMF Summary

Yesterday, IMF Officials weighed in on the global recovery.

“This crisis, however, is far from over,” they said. “The recovery remains very fragile and uneven across regions and sectors. To ensure that the recovery continues, it is essential that support not be prematurely withdrawn.’

Some Good News

From the CDC, this graph illustrates that all pandemics have a limited lifespan.

Source: FRED, BLS

Categorized as Economy

By Terry Grennon

Asset Allocation Strategist